Abstract: In the case of share transfer in a limited liability company with the system of subscription of registered capital, rules on the obligation of the transferee of share should be constructed in order to balance the effectiveness of resource allocation of share transfer with the effectiveness of credit protection of capital enrichment. These rules have been adjusted and enriched by the Draft Bill to Revise the Company Law on the basis of judicial experience, but they still have structural defects and application obstacles: they cannot effectively solve the problem of attribution of obligation for capital contribution in the case of multiple transfers of the subject share. Nor can they reasonably solve the long-term contingent liability burden caused by the non-application of the limitation of actions to the obligation for capital contribution, or strike a reasonable balance between the interests of various parties involved in share transactions under the subscribed capital system. The obligation for capital contribution under the subscribed capital system should be set as a burden on the share so as to construct rules of obligation for the share transferee's capital contribution characterized by the "relationship in rem". Only by setting the obligation to contribute as a burden on share, so that the obligation to contribute must be transferred with the share, can reasonable rules of obligation for the transferee of share be constructed, and the efficiency and effectiveness of the application of these rules be ensured. The performance of the contribution obligation should be divided into three categories, within each of which the liability for the contribution of capital between the transferor and the transferee should be set. (1) In the event that a shareholder transfers his or her share when the capital contribution period has not expired, the transferee of the share shall assume the capital contribution obligation upon the expiry of the capital contribution period and the transferor shall not be liable for the capital contribution. (2) Where a shareholder transfers his or her share upon the expiry of the capital contribution period but has not paid the capital in full, the transferee of the share shall be liable for the capital contribution and the transferor of the shareholding shall be supplementarily liable for any overdue payment; where the company has made a call on the transferor, the transfer of his or her shareholding shall be subject to the consent of the company. (3) If a shareholder transfers his or her share when the actual value of the non-monetary capital contribution is significantly lower than the amount of the subscription, the transferor of the share shall continue to be liable for the difference in the capital contribution, and other shareholders at the time the capital contribution is accepted by the company shall be liable for the contribution of capital in full, and the transferee of the share shall not be liable for the capital contribution. If the share transferee and the transferor are complicit in the false capital contribution, they shall be jointly liable for the difference in the capital contribution. 

Key Words: the system of subscription of registered capital; share transfer; obligation to contribute; breach of contract on capital contribution; liability for contribution 

Author: Chen Su, a member of Chinese Academy of Social Sciences and a vice chairman of China Law Society.

Source: 3 (2023) Global Law Review.